American Airlines CEO cites capacity growth risks

Alwyn Scott

3 Min Read

U.S. Airways CEO Doug Parker announces the planned merger of AMR Corp, the parent of American Airlines, with U.S. Airways during a news conference at Dallas-Ft Worth International Airport in this file photo taken on February 14, 2013. REUTERS/Mike Stone

MIAMI (Reuters) - American Airlines Group Inc Chief Executive Doug Parker voiced concern on Sunday about the risk that capacity growth among airlines could depress profits, but told Reuters that in contrast with past cycles, the rise in capacity “feels different.”

Asked about investor concerns that capacity increases at U.S. airlines are starting to exceed growth in demand, Parker said, ”the real question is, is this a one-time catch up for fuel prices being lower or is this airlines behaving like airlines used to and just increasing capacity because times are good.

“I don’t know if we know the answer to that yet,” Parker said on the sidelines of an International Air Transport Association (IATA) global airlines conference in Miami.

U.S. airlines have posted billion-dollar profits in the past year as fuel costs fell. Industry consolidation has also reduced the forces that caused past capacity growth and price wars.

The issue has flared up recently however, after American vowed to stand its ground as rival Southwest Airlines Co increases capacity in Dallas.

The comments sparked selling of U.S. airline stocks on fears that the two will begin discounting fares to compete in Dallas. The Texas city is a hub for both airlines, though they are based at different airports there.

Despite the concerns, Parker said that this round of capacity increases “feels different” because airlines and their financial backers have learned painful lessons from past cycles about the costs of adding capacity. “I think everybody in the industry understands that,” he said.

In a separate interview on the sidelines of the gathering of over 200 airlines, Air Canada Chief Executive Calin Rovinescu said he sees minimal risk of a damaging rise in capacity.

“The industry has learned the errors of the past,” he told Reuters. “We’re dealing with a more mature and experienced dynamic now.”

He added: “People were undisciplined in the past, but they will be more disciplined this time. However, we will see rational growth where it makes sense to do it. You can’t have one-size fits all perspective on capacity.”

Asked about Asia, Parker said American expects to expand through partnerships and organic growth. Competitor Delta Air Lines Inc said last month it is interested in forging alliances with carriers in Asia.

Parker didn’t suggest new partnerships, noting American alliances with Japan Airlines Co Ltd and Cathay Pacific Airways Ltd. He said those wouldn’t preclude expanding American service in those markets, however.